Analyst Picks and Pans October 28, 2009, 10:59AM EST

Stock Picks: Visa, Steel Companies, Apollo Group

Plus Wall Street analyst opinions on Chiquita Brands and Wynn Resorts

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Standard & Poor's Equity Research maintains hold; raises estimate, price target

S&P equity analyst Stuart Plesser said on Oct. 28 that Visa posted fiscal fourth-quarter operating earnings per share (EPS) of 74 cents, vs. 58 cents EPS one year earlier, matching his estimate. Notably, said Plesser, Visa's global payment volume declined only 2% vs. a 5% decline in the previous quarter, which points to a stabilization of spending habits by the consumer. Debit payments rose year over year, noted the analyst, as consumers continue to favor debit transactions -- a positive for Visa as it has a preponderance of debit cards.

Based on the higher spending volume, Plesser raised his fiscal 2010 (ending September) EPS estimate by 17 cents to $3.55. He also hiked his price target by $12 to $88.

AK Steel Holding (AKS)

U.S. Steel (X)

KeyBanc Capital Markets downgrades both to hold from buy

Steel Dynamics (STLD)

Reliance Steel & Aluminum (RS)

Olympic Steel (ZEUS)

KeyBanc Capital Markets reiterates buy on each

The economy is recovering too slowly to help U.S. steel manufacturers boost profitability soon, KeyBanc Capital Markets analyst Mark L. Parr said on Oct. 28. Parr said ferrous scrap prices could continue to decline over the next couple of months. He cited a recent $30 per ton decline in export scrap pricing.

"Domestic mills and export buyers remain on the sidelines, likely dampening the ability to substantially maintain or raise hot-rolled pricing realizations over the near term despite low supply chain inventories," Parr said in a client note.

Parr reduced his ratings for AK Steel and U.S. Steel, saying fourth-quarter outlooks from the two steel makers Tuesday were "somewhat disappointing."

"The outlooks clearly imply profit is very levered to pricing," Parr said. "With a more subdued pricing recovery unfolding, profit recovery will likely also be more gradual in nature."

U.S. Steel said Tuesday it expects better results in the fourth quarter, but it also said it plans to idle two blast furnaces. AK Steel said it expects shipments to rise in the final three months of the year. But its average selling price is expected to fall because it forecasts a higher percentage of carbon steel sales relative to more expensive stainless and electrical steels.

Parr said steel service center and restocking also may be hampered by a continuing lack of credit. "In our view, these issues put a premium on companies that are nimble, low-cost producers and those in place to support sporadic levels of demand as the recovery unfolds," he said.

He reiterated buy ratings on Steel Dynamics, Reliance Steel & Aluminum, and Olympic Steel Inc.

Apollo Group (APOL)

Wedbush Morgan reiterates underperform; cuts price target

Shares of Apollo Group Inc., owner of the University of Phoenix, the biggest for-profit higher education provider in the U.S., fell on Oct. 28 after the company said the Securities and Exchange Commission had launched an "informal inquiry" into its revenue accounting practices. Shares tumbled $11, or 15.1%, to $61.97 before the start of regular trading.

This is the second time this year the SEC has looked into how Apollo accounts for sales, most of which comes from students' tuition. Federal student loans from the government make up nearly 90% of Apollo's tuition income. In February, the corporate finance division of the SEC said it was looking into Apollo's revenue recognition practices. This new probe comes from the SEC's enforcement unit.

"Some investors have opted to scrutinize the company's practices on student refunds and bad debt expense, the implication being that this could be the beginning of an industry wide review of practices," wrote Wedbush Morgan analyst Ariel Sokol in a note to investors Oct. 28. Sokol cut his price target on Apollo shares to $65 from $80. "We remind investors that its plausible that the issue could equally relate to other parts of the business."